Definition
Economic growth is the increase, over time, in the quantity of goods and services an economy produces. It is most commonly measured by the change in real gross domestic product, which adjusts for inflation so that the figure reflects genuine output rather than rising prices.
Growth in output per person, rather than total output, is the measure most closely tied to living standards. An economy whose population grows as fast as its output is not making each person better off.
Why it matters
How it works
In the short run, an economy grows when idle resources, unemployed workers or unused capacity, are put back to work. In the long run, lasting growth comes from producing more from the same inputs, that is, from rising productivity. Productivity improves through investment in capital, better technology, education and skills, and more efficient organization of work. Because growth compounds, a country growing at three percent a year doubles its output in roughly a generation, while one growing at one percent takes far longer, which is why long-run growth rates matter so much.